Rangarajan urges banks to revamp rural credit

BANKER'S CONFERENCE 2006

Commercial banks must reorganise their rural branches with specialised procedures, products and services, said C Rangarajan, head of the committee on inclusive growth and chairman of the economic advisory council to the Prime Minister.

Rangarajan said banks must redesign their rural credit delivery to bring about resurgence in agriculture.

Banks' approach towards rural market needs a thorough change to live up to their crucial role in attaining financial inclusion, Rangarajan said at a special lecture on policy perspectives of inclusive growth at Bancon-2006 here on Saturday, "If not all, reorganise most rural branches in such a way that while promoting the financial inclusion they also advise smaller farm house holds to improve their productivity that ensure better repayment," he said while advocating an independent approach to each of the excluded segments of society. In this context he also suggested the possibility of credit-input linkage by rural braches.

According to him, rural market is not a single market and therefore a segmented approach was required to further the financial inclusion is signified from the fact that smaller farm households having below one hectare of land are found to be far behind when it comes to accessing institutional credit.

Suggesting measures to improve rural credit delivery, he advised banks to think of going as far as creating a rural cadre with adequate incentives encouraging the rural branch employees staying in villages to forge a rapport with marginal farm households.

"To reach out to excluded segments of society, banks have to adopt attitudinal empathy, specialised procedures products and systems to suit the requirements of these house holds and institutional changes," Rangarajan said.

Asking banks to experiment with facilitator and business correspondent models to supplement their effort in achieving financial inclusion, he felt farmers would not mind an 1-2 percentage increase in rate of interest or service charges as their main concern would be timely and adequate credit.

Besides the reorganisation of rural branches, Rangarajan also advised banks to make bank-self help groups (SHG) linkage more efficient.

"Net credit extended by banks to SHGs is very small when SHG deposits are taken into account," he said adding that there was immense scope for banks to expand credit facilities to SHGs.

Rangarajan advised the governments to shift their focus from lowering interest rates to increasing technical skills of SHG women and providing market for their products.

"Lowering the rate of interest would defeat the very purpose of making SHGs stand on their feet. It is time that they graduate from making papads and pickles to higher level of products. Government should provide its support in the form of imparting technical skills and providing market linakges," he said.

While touching up on the macro economic factors that help drive the economy towards inclusive growth, Rangarajan highlighted prerequisite of three dimensions of the economy to achieve the goals as following: "Economy needs to grow faster, pattern of growth should be labour intensive which is relevant sectors such as agriculture and social safty nets are required to be strengthened including the increased spending on education and health".